Private Placement : Recent Amendments
D. Ramachandra Rao
This write up bestows certain provisions regarding private placement in light of Companies (Amendment) Act, 2017 and rules notified in respect thereto.
1. Introduction
Private placement is one of the fastest mode to raise funds. Section 42 of the Companies Act, 2013 read with rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014 deals with the private placement of securities. This section has been completely substituted by the Companies (Amendment) Act, 2017, clarifying, simplifying and modifying the existing provisions. It came into force w.e.f. 7-8-2018. Consequently, the Ministry of Corporate Affairs notified its corresponding amended rule 14 vide Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2018. Thus, the relevant amended provisions being effective from 7-8-2018 has been discussed hereunder:
2. Private Placement--Meaning of
The term 'Private Placement' has been defined in Explanation I to section 42(3) which means any offer or invitation to subscribe or issue of securities to a select group of persons by a company (other than by way of public offer) through private placement offer-cum-application, which satisfies the conditions specified in the said section 42.
However, if a company, listed or unlisted, makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, securities to more than the prescribed number of persons, whether the payment for the securities has been received or not, the same would be deemed to be an offer to the public and not governed by the provisions of private placement.
3. Number of persons to whom offer can be privately placed
Section 42(2) states that a private placement can be made only to persons identified by the Board and their number should not exceed fifty or such higher number as may be prescribed, in a financial year subject to such conditions as may be prescribed.